The Information Content of German Discount Rate Changes
Posted: 28 Oct 1996
Date Written: Undated
Discount rate changes always receive considerable attention in financial markets and a bulk of empirical papers shows that asset markets react to them. However, among researchers, there is no consensus yet about why markets respond to such changes. This paper analyses this issue for the Bundesbank's discount rate changes after 1979. The empirical results indicate that the overnight rate reacts to changes in the discount rate to the extent that they are unanticipated. Moreover, this effect cannot be attributed to a direct "borrowing cost effect", but exclusively to announcement effects.
JEL Classification: E43, E52
Suggested Citation: Suggested Citation